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Accounting Chapter 14 Study Guide


True/False
Indicate whether the sentence or statement is true or false.
 

 1. 
Each unit of ownership in a corporation is known as a stock dividend.
 

 2. 
A stockholder is an owner of one or more shares of a corporation.
 

 3. 
Owners' equity accounts for a corporation normally are listed under a major chart of accounts division titled Operating Expenses.
 

 4. 
An amount earned by a corporation and not yet distributed to stockholders is called retained earnings.
 

 5. 
Dividends are earnings retained by the corporation.
 

 6. 
The dividends account has a normal debit balance and is increased by a debit.
 

 7. 
A corporation's board of directors is elected by the stockholders.
 

 8. 
A board of directors distributes earnings of a corporation to its stockholders by declaring a dividend.
 

 9. 
A declared dividend is classified as an expense.
 

 10. 
When a declared dividend is paid, Dividends Payable is credited.
 

 11. 
A work sheet is used to plan adjustments and summarize the information necessary to prepare financial statements.
 

 12. 
The steps for preparing a work sheet are very different for proprietorships and corporations.
 

 13. 
General ledger account balances are changed when adjustments are entered on the work sheet.
 

 14. 
The adjustment for merchandise inventory is common for all businesses.
 

 15. 
The supplies--store account must be adjusted to show the expense of the supplies that are purchased during the year.
 

 16. 
The prepaid insurance account is adjusted to show the value of insurance that has been prepaid.
 

 17. 
During a fiscal period, the amount of merchandise on hand remains unchanged.
 

 18. 
Most accounts needing adjustment at the end of a fiscal period have a related temporary account.
 

 19. 
The risk of uncollectible accounts should be recorded as an expense in the same accounting period that the revenue is earned.
 

 20. 
Accounts Receivable is a contra account to its related asset account, Allowance for Uncollectible Accounts.
 

 21. 
Many businesses use a percentage of total sales to estimate uncollectible accounts expense.
 

 22. 
Assets that will be used for a number of years in the operation of a business are called plant assets.
 

 23. 
Accumulated depreciation is the depreciation expense that has been recorded since the purchase of a current asset.
 

 24. 
Federal income tax is an expense of a corporation.
 

 25. 
When a corporation makes the quarterly payment of estimated federal income tax, the cash account is debited.
 

 26. 
The amount of federal income tax expense a corporation must pay is calculated using a tax rate table furnished by the Internal Revenue Service.
 

 27. 
Depreciation accumulates each year of a plant asset's useful life.
 

 28. 
The difference between an asset's account balance and its related contra account balance is called par value.
 

 29. 
Merchandise Inventory is an asset account with a normal credit balance.
 

 30. 
In order to make adjustments to federal income tax, you must first determine the net income before federal income tax expense.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 31. 
A business prepares a summary of financial information at least once each fiscal period because financial information ____.
a.
is needed to make management decisions
b.
shows whether a profit is being made or a loss is being incurred
c.
is needed to prepare tax reports
d.
all of the above
 

 32. 
The distribution of dividends only by formal action of a corporation's board of directors is an application of the accounting concept ____.
a.
Accounting Period Cycle
c.
Business Entity
b.
Adequate Disclosure
d.
Historical Cost
 

 33. 
The amount of goods on hand for sale to customers is ____.
a.
a merchandise inventory
c.
a schedule of goods on hand
b.
an inventory
d.
a purchases inventory
 

 34. 
The general ledger account in which merchandise inventory is recorded is titled ____.
a.
Merchandise Inventory
c.
Purchases
b.
Inventory
d.
Purchases Inventory
 

 35. 
The entry to journalize the adjustment for merchandise inventory at the end of a fiscal period when ending merchandise inventory is smaller than the beginning is ____.
a.
debit Merchandise Inventory; credit Income Summary
b.
debit Income Summary; credit Merchandise Inventory
c.
debit Merchandise Inventory; credit capital account
d.
debit capital account; credit Merchandise Inventory
 

 36. 
The entry to journalize the adjustment for merchandise inventory at the end of a fiscal period when the ending merchandise inventory is larger than beginning merchandise inventory is ____.
a.
debit Merchandise Inventory; credit Income Summary
b.
debit Income Summary; credit Merchandise Inventory
c.
debit Merchandise Inventory; credit capital account
d.
debit capital account; credit Merchandise Inventory
 

 37. 
The entry to journalize the adjustment for merchandise inventory when beginning Merchandise Inventory is $125,000.00 and ending Merchandise Inventory is $115,000.00 is ____.
a.
debit Merchandise Inventory, $10,000.00; credit Income Summary, $10,000.00
b.
debit Income Summary, $10,000.00; credit Merchandise Inventory, $10,000.00
c.
debit Merchandise Inventory $115,000.00; credit Income Summary, $115,000.00
d.
debit Income Summary, $115,000.00; credit Merchandise Inventory, $115,000.00
 

 38. 
The entry to journalize the adjustment for office supplies at the end of a fiscal period is ____.
a.
debit Supplies--Office; credit Supplies Inventory
b.
debit Supplies Inventory; credit Supplies--Office
c.
debit Supplies--Office; credit Supplies Expense--Office
d.
debit Supplies Expense--Office; credit Supplies--Office
 

 39. 
The entry to journalize the adjustment for office supplies at the end of a fiscal period when the balance of the office supplies account is $5,100.00 and the office supplies inventory is $3,900.00 is ____.
a.
debit Supplies Expense--Office, $1,200.00; credit Supplies--Office, $1,200.00
b.
debit Supplies Expense--Office, $3,900.00; credit Supplies--Office, $3,900.00
c.
debit Supplies--Office, $1,200.00; credit Supplies Inventory, $1,200.00
d.
debit Supplies Expense--Office, $3,900.00; credit Supplies Inventory, $3,900.00
 

 40. 
The entry to journalize the adjustment for prepaid insurance at the end of a fiscal period is ____.
a.
debit Prepaid Insurance; credit Cash
b.
debit Cash; credit Prepaid Insurance
c.
debit Insurance Expense; credit Prepaid Insurance
d.
debit Prepaid Insurance; credit Insurance Expense
 

 41. 
The entry to adjust prepaid insurance at the end of a fiscal period when the balance of the prepaid insurance account is $3,600.00 and the value of the prepaid insurance is $1,600.00 is ____.
a.
debit Insurance Expense, $1,600.00; credit Prepaid Insurance, $1,600.00
b.
debit Insurance Expense, $2,000.00; credit Prepaid Insurance, $2,000.00
c.
debit Prepaid Insurance, $1,600.00; credit Insurance Expense, $1,600.00
d.
debit Prepaid Insurance, $2,000.00; credit Insurance Expense, $2,000.00
 

 42. 
A work sheet is used to ____.
a.
plan adjustments
b.
summarize information necessary to prepare financial statements
c.
both A and B
d.
neither A nor B
 

 43. 
What is the formula for calculating book value?
a.
Original Cost - Accumulated Depreciation = Ending Book Value
b.
Original Cost + Accumulated Depreciation = Ending Book Value
c.
Original Cost ´ Accumulated Depreciation = Ending Book Value
d.
Original Cost ¸ Accumulated Depreciation = Ending Book Value
 

 44. 
The Supplies--Office amount in a work sheet's Trial Balance Debit column represents the value of supplies ____.
a.
bought during a fiscal period
b.
at the beginning of a fiscal period
c.
used during a fiscal period
d.
at the beginning of a fiscal period plus office supplies bought during the fiscal period
 

 45. 
The portion of the insurance premiums that has expired during a fiscal period is classified as ____.
a.
capital
c.
a liability
b.
an expense